DXP Enterprises Announces Fourth Quarter and Fiscal 2017 Results

$61.7 million in earnings before interest, taxes, depreciation and
amortization (“EBITDA”)

Free cash flow (“FCF”) of $9.7 million, adjusting for the
reclassification of outstanding checks, FCF for fiscal 2017 was $26.8
million

Closed on new $85 million Asset Based Revolving Credit Facility and
$250 million Senior Secured Term Loan B

Net debt of $226.5 million with $25.6 million in cash on the
balance sheet

March 20, 2018 09:08 PM Eastern Daylight Time

HOUSTON--(BUSINESS WIRE)--DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial
results for the fourth quarter ended December 31, 2017. The following
are results for the three and twelve months ended December 31, 2017,
compared to the three and twelve months ended December 31, 2016. A
reconciliation of the non-GAAP financial measures can be found in the
back of this press release.

Fourth Quarter 2017 financial highlights:

Sales were $265.6 million for the fourth quarter of 2017, an increase
of 5.4 percent from the third quarter and an increase of 19.5 percent
compared to $222.3 million for the fourth quarter of 2016.

Earnings per diluted share for the fourth quarter was $0.36 based upon
18.2 million diluted shares, compared to $0.42 per share in the fourth
quarter of 2016, based on 17.4 million diluted shares, which included
the $5.6 million gain on the sale of Vertex.

Earnings before interest, taxes, depreciation and amortization
(EBITDA) for the fourth quarter was $15.8 million compared to $13.5
million for the third quarter of 2017, an increase of 17.1 percent.
EBITDA as a percentage of sales was 6.0 percent and 5.4 percent for
the fourth and third quarter, respectively, a 59 basis point
improvement.

Free cash flow (cash flow from operating activities less capital
expenditures) for the fourth quarter was $3.4 million or 21.3 percent
of EBITDA.

Fiscal Year 2017 financial highlights:

Sales were $1.0 billion for fiscal year 2017, compared to $962.1
million for fiscal year 2016, an increase of 4.6 percent. Adjusting
for the divestiture of Vertex in October of 2016 or $22.7 million in
sales, organic sales increased 7.2 percent.

Gross profit was $271.6 million, or 27.0 percent of sales for the
fiscal year 2017, compared to $264.8 million, or 27.5 percent of sales
for the fiscal year 2016.

Selling, general and administrative (SG&A) expenses were $238.1
million, or 23.7 percent of sales for fiscal 2017, compared to $245.5
million, or 25.5 percent of sales for fiscal 2016.

Earnings per diluted share for the fiscal year 2017 grew 89.8 percent
to $0.93 based upon 18.2 million diluted shares, compared to $0.49 per
diluted share in fiscal 2016, based on 15.9 million diluted shares.

EBITDA was $61.7 million for fiscal 2017, compared to $55.2 million
for fiscal 2016. EBITDA as a percentage of sales was 6.1 percent and
5.7 percent in fiscal 2017 and 2016, respectively.

Free cash flow (cash flow from operating activities less capital
expenditures) for fiscal 2017 was $9.7 million compared to $43.1
million for fiscal 2016. Adjusting for the 2017 reclassification of
outstanding checks (see non-GAAP reconciliation), free cash flow for
fiscal 2017 would have been $26.8 million.

Business segment financial highlights:

Service Centers’ revenue for the
fiscal year was $641.3 million, an increase of 3.3 percent
year-over-year with a 9.9 percent operating income margin.

For the fourth quarter, revenue increased 3.8 percent sequentially
with a 9.6 percent operating income margin.

Innovative Pumping Solutions’
revenue for the fiscal year was $204.0 million, an increase of 9.0
percent year-over-year with a 5.6 percent operating income margin.

For the fourth quarter, revenue increased 16.6 percent
sequentially with a 7.3 percent operating income margin.

Supply Chain Services’ revenue for
the fiscal year was $161.5 million, an increase of 4.9 percent
year-over-year with a 9.6 percent operating margin.

For the fourth quarter, revenue declined 2.1 percent sequentially
with a 9.4 percent operating income margin.

David R. Little, Chairman and CEO remarked, “We closed the year with
fourth-quarter sales growing 5.4 percent sequentially leading to full
year results growing 7.2 percent year-over-year, adjusting for the
divestiture of Vertex. Improved market conditions together with DXP’s
ability to execute on key organic initiatives are delivering widespread
improvements across DXP.

I am encouraged with the current state of our company and I have never
been more confident in our strategy and ability to create shareholder
and stakeholder value. We are prioritizing investments and focusing on
DXP having a smart recovery through this next up cycle. We are also
emphasizing continuous improvement across DXP to generate margin
expansion while growing the top-line.

DXP’s fiscal 2017 sales were $1.0 billion, or a 4.6 percent increase
over fiscal 2016, on a reported actual basis. Each of our business
segments experienced sales growth in fiscal 2017 with Innovative Pumping
Solutions growing 9.0 percent, Supply Chain Services growing 4.9 percent
and Service Centers growing 3.3 percent. Fiscal 2017 sales were $641.3
million for Service Centers, $204.0 million for Innovative Pumping
Solutions and $161.5 million for Supply Chain Services. DXP produced
EBITDA of $61.7 million growing 11.8 percent over fiscal 2016.

As we look ahead, we expect accelerating organic sales growth, EBITDA
margin enhancement, with strong cash flow generation and growth in
earnings. Our key end markets continue to show stabilization but we will
watch all our markets closely, especially given our recent experience of
both oil and gas and industrial cycling down at the same time. In 2018,
we will build on the momentum we have generated and remain
customer-focused as we continue to create long-term value for
shareholders.”

Kent Yee, CFO added, “DXP’s fiscal 2017 financial performance reflects
the beginning of a positive improvement in our business. Adjusting for
the divestiture of Vertex, sales and EBITDA grew 7.2 percent and 32.2
percent, respectively. Our fiscal 2017 diluted earnings per share was
$0.93, which also includes a $1.3 million provisional benefit related to
U.S. tax reform. DXP ended the year with $25.6 million in cash on the
balance sheet and net debt of $226.5 million. During the year, we
successfully refinanced our credit facility with a new ABL and Term Loan
B, while positioning DXP to take advantage of what we believe is
building momentum in our business. DXP is in a position to invest in our
business and see potential for significant value creation as we pivot
our strategy to growth and continuous improvement to expand margins.
DXP’s execution from our sales teams and partners is driving growth
across our businesses and we look forward to a successful fiscal 2018.”

Non-GAAP Financial Measures

DXP supplements reporting of net income with non-GAAP measurements,
including EBITDA, Adjusted EBITDA and free cash flow. This supplemental
information should not be considered in isolation or as a substitute for
the unaudited GAAP measurements. Additional information regarding EBITDA
and free cash flow referred to in this press release are included below
under "--Unaudited Reconciliation of Non-GAAP Financial Information."

The Company believes EBITDA provides additional information about: (i)
operating performance, because it assists in comparing the operating
performance of the business, as it removes the impact of non-cash
depreciation and amortization expense as well as items not directly
resulting from core operations such as interest expense and income taxes
and (ii) the performance and the effectiveness of operational
strategies. Additionally, EBITDA performance is a component of a measure
of the Company’s financial covenants under its credit facility.
Furthermore, some investors use EBITDA as a supplemental measure to
evaluate the overall operating performance of companies in the industry.
Management believes that some investors’ understanding of performance is
enhanced by including this non-GAAP financial measure as a reasonable
basis for comparing ongoing results of operations. By providing this
non-GAAP financial measure, together with a reconciliation from net
income, the Company believes it is enhancing investors’ understanding of
the business and results of operations, as well as assisting investors
in evaluating how well the Company is executing strategic initiatives.

About DXP Enterprises, Inc.

DXP Enterprises, Inc. is a leading products and service distributor that
adds value and total cost savings solutions to industrial customers
throughout the United States, Canada, Mexico and Dubai. DXP provides
innovative pumping solutions, supply chain services and maintenance,
repair, operating and production ("MROP") services that emphasize and
utilize DXP’s vast product knowledge and technical expertise in rotating
equipment, bearings, power transmission, metal working, industrial
supplies and safety products and services. DXP's breadth of MROP
products and service solutions allows DXP to be flexible and
customer-driven, creating competitive advantages for our customers.
DXP’s business segments include Service Centers, Innovative Pumping
Solutions and Supply Chain Services. For more information, go to www.dxpe.com.

The Private Securities Litigation Reform Act of 1995 provides a
“safe-harbor” for forward-looking statements. Certain information
included in this press release (as well as information included in oral
statements or other written statements made by or to be made by the
Company) contains statements that are forward-looking. Such
forward-looking information involves important risks and uncertainties
that could significantly affect anticipated results in the future; and
accordingly, such results may differ from those expressed in any
forward-looking statement made by or on behalf of the Company. These
risks and uncertainties include, but are not limited to; ability to
obtain needed capital, dependence on existing management, leverage and
debt service, domestic or global economic conditions, and changes in
customer preferences and attitudes. In some cases, you can identify
forward-looking statements by terminology such as, but not limited to,
“may,” “will,” “should,” “intend,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential,” “goal,” or “continue” or
the negative of such terms or other comparable terminology. For more
information, review the Company’s filings with the Securities and
Exchange Commission.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

($ thousands, except per share amounts)

Years Ended

Three Months Ended

December 31,

December 31,

2017

2016

2017

2016

Sales

$

1,006,782

$

962,092

$

265,627

$

222,291

Cost of sales

735,201

697,290

194,460

161,730

Gross profit

271,581

264,802

71,167

60,561

Selling, general and administrative expenses

238,091

245,470

62,680

53,009

Operating income

33,490

19,332

8,487

7,552

Other income, net

(456)

(5,906)

(132)

(5,509)

Interest expense

17,054

15,564

4,481

3,866

Income before income taxes

16,892

9,674

4,138

9,195

Provision (benefit) for income taxes

363

2,523

(2,517)

2,064

Net income

16,529

7,151

6,655

7,131

Less: Net (loss) income attributable to non-controlling interest

(359)

(551)

1

(250)

Net income attributable to DXP Enterprises, Inc.

16,888

7,702

6,654

7,381

Preferred stock dividend

90

90

22

22

Net income attributable to common shareholders

$

16,798

$

7,612

$

6,632

$

7,359

Diluted earnings per share attributable to DXP Enterprises, Inc.

$

0.93

$

0.49

$

0.36

$

0.42

Weighted average common shares and common equivalent shares
outstanding

18,240

15,882

18,232

17,411

SEGMENT DATA

($ thousands, unaudited)

Sales by Segment

Years Ended

Three Months Ended

December 31,

December 31,

2017

2016

2017

2016

Service Centers

$

641,275

$

621,007

$

166,951

$

139,655

Innovative Pumping Solutions

204,030

187,124

59,474

45,510

Supply Chain Services

161,477

153,961

39,201

37,126

Total DXP

$

1,006,782

$

962,092

$

265,626

$

222,291

Operating Income by Segment

Years Ended

Three Months Ended

December 31,

December 31,

2017

2016

2017

2016

Service Centers

$

63,250

$

47,633

$

15,941

$

12,155

Innovative Pumping Solutions

11,423

9,867

4,321

2,444

Supply Chain Services

15,450

15,449

3,693

3,838

Total DXP

$

90,123

$

72,949

$

23,955

$

18,437

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)

Years Ended

Three Months Ended

December 31,

December 31,

2017

2016

2017

2016

Operating income for reportable segments

$

90,123

$

72,949

$

23,955

$

18,437

Adjustment for:

Amortization of intangibles

17,265

18,061

4,323

4,504

Corporate expense

39,368

35,556

11,145

6,381

Total operating income

33,490

19,332

8,487

7,552

Interest expense

17,054

15,564

4,481

3,866

Other income, net

(456)

(5,906)

(132)

(5,509)

Income before income taxes

$

16,892

$

9,674

$

4,138

$

9,195

Unaudited Reconciliation of Non-GAAP Financial Information

The following table is a reconciliation of Adjusted EBITDA**, a non-GAAP
financial measure, to income before income taxes, calculated and
reported in accordance with U.S. GAAP ($ thousands, unaudited).

The following table is a reconciliation of Free Cash Flow***, a non-GAAP
financial measure, to cash flow from operating activities, calculated
and reported in accordance with U.S. GAAP ($ thousands, unaudited).

Years Ended

Three Months Ended

December 31,

December 31,

2017

2016

2017

2016

Net cash provided by operating activities

$

12,545

$

48,006

$

4,017

$

12,866

Less: purchase of equipment

2,811

4,868

654

1,977

Free Cash Flow

$

9,734

$

43,138

$

3,363

$

10,889

Plus: Outstanding Checks

17,054

-

4,354

-

Adjusted Free Cash Flow

$

26,788

$

43,138

$

7,717

$

10,889

***Outstanding Checks – Accounting rules require companies to net
outstanding check balances against cash that is available. Prior to
DXP’s Q3 refinancing, DXP did not have cash on its balance sheet
with its primary lender to net the outstanding checks, thus they
were included in the accounts payable balance.